Cheque Bounce Laws

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Common Questions for Cheque Bounce

What is legal recourse for cheque bounce for the payee and for the payer?

What is the maximum penalty and punishment for cheque bounce?

Can out of court settlement happen in case of cheque bounce case?

Will cheque bounce case still hold good when the issuer has gone bankrupt?

Can I pay the amount while the case is going on, and get the case closed?

Will marking a cheque STOP amount to cheque bounce?

Can I get arrested for cheque bounce?

Cheque bounce stall the normal transactions in commercial world and thus hinders the growth in business. Since it affects the business cycle in a big way, so the lawmakers have made the cheque bounce as criminal offence and punishable act.

Vidhikarya will help you find a most suitable lawyer, for you in your city, who will be able to answer all your cheque bounce related queries, whether you are the issuer of the cheque or payee, and also guide you on how to resolve this matter with ease.

About the Cheque Bounce Laws

A bounced cheque or a dishonoured cheque is a situation wherein the payer’s Bank abstains from making the payment to the payee for different reasons like mismatch in the signature/account number, insufficient funds in drawer’s account, etc. Bouncing of cheques is a statutory offence (criminal offence), and there are legal conditions to be followed in the event of a cheque bounce.

Once a cheque bounce has happened and the payee has initiated a case then the defaulter has no option but to either pay the amount with in the stipulated time or else defend the case in the court. In either case he has to engage a lawyer to help him sail through this legal tangle.

So, what Vidhikarya can do for you is that it will help you in finding and engaging a right and suitable lawyer for your cause.

We at Vidhikarya endeavour to help you and assist you in finding the right lawyer in your city or otherwise so that you can go ahead and peacefully get your legal matter resolved. You do not have to worry on how to hire a lawyer or find an advocate for your matter. You can simply dump the question of “find an advocate in my city” to Vidhikarya and just relax.

What the cheque bounce law is and what it does?

Section 138 of the Negotiable Instruments Act 1881
Section 138 of the N.I. Act makes dishonour of cheque for insufficiency of funds a statutory offence. As per this provision, bouncing of any cheque issued for a legally enforceable debt or liability can be a ground for a lawsuit with certain conditions.

Conditions for applicability of Section 138 of N.I. Act
Cheque must be drawn within a period of three months from the date it’s drawn or within the period of its validity, depending on whichever date is earlier.

The holder (one who was supposed to get the money after depositing the cheque) has to demand for the payment of the bounced cheque within 30 days from the day when he was made aware about the return of the concerned cheque as unpaid.

The drawer of the cheque must have failed to make payment of the concerned amount to the payee within 15 days from the date of receiving the ‘Notice’ spoken of in the above point.

The debt must be a legally enforceable debt, the burden of proof of proving the illegality of the debt lies on the drawer of the cheque.

What are the applicable laws to Cheque bounce?

Indian Penal Code, 1860
Section 420 of the Indian Penal Code may be attracted:

Supreme Court in the case of ‘Sangeetaben Mahendrabhai Patel v. State of Gujrat’ has held that simultaneous proceedings under Section 138 of the N.I. Act and Section 420 of the Indian Penal Code(IPC) for a case of cheque bounce is permissible.

However, the dishonest or malafide intention has to be shown by the prosecution to invoke a case under Section 420 of the IPC for an instance of cheque bounce, and this provision does not deal with recovery of money.

Section 138 of the Negotiable Instruments Act 1881
Section 138 of the Negotiable Instruments Act is applicable to cheque bounce case. In fact, this Section of N I Act was specifically enacted to curb the rising cases of cheque bounce which was creating unnecessary roadblocks to the businesses.

Some important facts and cases about and under Cheque Bounce law

The Offence under the Cheque Bounce is compoundable
The offence punishable under Section 138 of the Act of 1881 is primarily related to a civil wrong and the Amendment [The Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002] of 2002 specifically made it compoundable.

The Hon’ble Supreme Court in Damodar S. Prabhu v. Sayed Babalal H., (2010) 5 SCC 663, held that the Accused could make an Application for compounding at the first or second hearing in which case the Court ought to allow the same. If such Application is made later, the Accused is required to pay higher amount towards cost etc. It was also held compounding could not be permitted merely by unilateral payment, without the consent of both the parties.

No need of “mens rea” or guilty mind to be proved
In Mayuri Pulse Mills v. Union of India, Court held that for an offence under Section 138 of N.I. Act, mens rea is not essential as the section brings into operation the rule of strict liability.

Jurisdiction for filing a cheque bounce case
In Dashrath Rupsingh Rathod v. State of Maharashtra it was held that a complaint regarding “dishonour of a cheque” can be filed only in the Court within whose local jurisdiction the offence was committed, i.e., where cheque was dishonoured.

Technical Reasons can not be grounds for Cheque Bounce case
Reason for the bouncing of cheque should not be of a technical nature, as technical irregularities are not covered by the provisions of Section 138 of the N.I. Act. For example, bouncing of a cheque due to incorrect date entered, or due to discrepancy between amount in words and figures, not being in MICR form, etc.

Important Procedures under Cheque Bounce law

Cheque must be presented to the bank for payment within a period of three months (earlier it was 6 months) from the date mentioned on the cheque.

In case the cheque gets bounced, the holder of the cheque should ask the payer or issuer for the payment by giving a legal notice to the drawer in writing within 30 days of the receipt of information of non-payment by the bank.

Even after receipt of notice if the drawer of the cheque fails to make the payment within the stipulated time, which is 15 days from the receipt of notice then the cheque holder or the payee can move the court.

Reliefs available under Cheque Bounce Laws

Fine and Punishment under Section 138 of the N.I. Act
Punishment for the above-mentioned offence is a fine which may extend to twice the amount of the original cheque or imprisonment for a term which may be up to two years or both.

Interim Compensation can be ordered
Court can pass an order to pay interim compensation during the pendency of the court. (This law is getting enacted)

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